The Negative Volume Index (NVI) is a technical indicator that tracks decreases in trade volume for an index or security, as well as price changes on those days. Paul Dysart developed the original version of this indicator for market indexes, and it garnered renewed attention when it was reworked in the 1970s via Norman Fosback in his book Stock Market Logic.
The price changes in a security or the percentage change in an index are only added to or subtracted from the Negative Volume Index on days when the trading volume is lower than the day before. By watching market movement on days with lower trading volume, investors can identify where institutions and fund managers are moving their money. If trading volume is down and the market continues to do well, it means that there is a strong bullish primary trend, and that trading volume is not artificially pushing prices around.
This particular phenomenon was what Dysart considered the strongest indicator of bull market conditions. It has held up in most analysis, even though he was troubled by its lack of viability in the 1960s. Fosback noted that the uninformed majority of investors were likely to be active on the days when the volume was highest, and both analysts felt that paying close attention the Negative Volume Index would better indicate what the smart money was doing.
The 200- or 250-day moving average of the NVI is used as the crossover point, after which a primary trend change (bullish or bearish) is thought to be indicated.
The NVI and PVI can be used together to give better context to the market, but while both indicators can be effective on their own and together, no indicator is 100% accurate. Whipsaws can obscure true trends, and other irregularities may arise. That’s why savvy traders will look for additional signals to confirm – or force them to reconsider – potential trading decisions. Tickeron’s Artificial Intelligence, known as A.I.dvisor, gives traders powerful ways to evaluate trade ideas, analyze signals, and provide the key confirmation needed to make rational, emotionless, and effective trades.